But the author of the report, FoE campaigner Sarah Jayne-Clifton, said: "Carbon trading is failing dismally at reducing emissions, yet allows speculators to grow rich from the climate crisis and hands politicians and industry a get-out clause for polluting business as usual.

"Science tells us rich countries must act first and fast to cut their emissions at home if we are to avert climate catastrophe - and support poorer countries with adequate public money to grow cleanly and adapt to the effects of climate change which they are already feeling."

The European trade in carbon permits and credits was worth $126 billion last year, and is predicted to rocket to $3.1 trillion by 2020 if a global carbon market is established.

Ed Miliband, the climate change secretary, said at Commons question time that the people who have done least to cause the problem of climate change face its worst consequences, including those in Africa.

"We have to persuade developing countries to do not as we did, which is to grow in a high-carbon way, but to do as we say, which is to grow in a low-carbon way," he said.

The FoE report argues rich countries use carbon trading as a smokescreen "to avoid their legal and moral commitment to provide money and technology to developing countries to grow cleanly and adapt to climate change".

It recommends the government use regulation, a carbon tax and investment in "greening" the economy to reduce emission by at least 40 per cent by 2020 without offsetting.

The report comes before the Copenhagen UN climate conference next month, where governments will discuss policies to prevent climate change.